M.I.A.
OPINION: The previous government spent too much during the Covid-19 pandemic, despite warnings from officials, according to a briefing released by the Treasury.
Demand is returning as lockdown restrictions loosen in key markets, prompting at least two banks last week to up their forecast payout for the 2020-21 season.
Rabobank is now forecasting a farmgate milk price of $5.95/kgMS, a jump of 35c. Westpac lifted its forecast payout by 20c to $6.50/kgMS.
RaboResearch senior analyst Michael Harvey says government intervention buying and the reopening of the foodservice sector have helped jump start dairy demand across key international markets.
“The northern hemisphere experienced a rebound in milk and dairy product prices toward the end of quarter two as a result of government intervention, while we’ve also seen a rebound in cheese prices – particularly in the US – with this largely attributable to the re-opening of the food service sector,” Harvey says.
Dairy markets have performed better than expected over recent months and prices should now avoid dropping to the levels anticipated earlier in the year.
“And these factors have helped boost dairy demand and prices have moved back toward, or in some cases above, pre-Covid levels.”
Westpac agri economist Nathan Penny agrees that Covid’s impact on global dairy prices has not been as severe as first feared.
Global dairy prices have now stabilised and begun to recover from Covid-driven price falls earlier in the year, he says.
Penny notes that whole milk powder prices were effectively flat over May, while June prices have lifted 4.4%, with similar movements in prices overall.
“The price stabilisation and improvement have come earlier than we anticipated.”
However, both analysts caution that things could easily turn sour and a looming global recession could also hit prices.
Harvey said while price rebounds were a sign the global dairy sector was on a path to recovery, the true strength of the current market was difficult to assess and the sector was not yet “out of the woods”.
He expects expanding global supply and economic recession across much of the globe to further hinder the speed of the recovery in dairy markets.
Penny agrees that a global recession still looms large.
Global dairy prices will soften as the global recession weighs on global dairy demand later in the year.
“Indeed, we have factored in for global dairy prices to weaken over the peak NZ production months as the extra dairy volumes combine with softening global demand thus it pays to be prepared.
“With that in mind, it pays to note that it is still early days in the season and the uncertainties around the Covid impact through the full dairy season remain large. On this basis, we recommend that farmers approach the season with ‘eyes wide open’.”
